I met with a prospective client recently who had some cash but wanted a guaranteed income stream for the next few years with no market risk. She was considering a 5 year GIC as it seemed the best option she had seen for her situation.
As a 64 year old, she did not want to risk any dips so she had ruled out investing in the markets. She had specific income needs and the 1.5% rate her bank quoted her for her $100000 was lower than she was expecting. That would be $125/month in interest payments which is well below the $300/month she had hoped to get. She would need to wait until the end of the term for access to her principal. She was nervous committing to that since she may need some of her lump sum to live on. We looked at redeemable 5 year GIC and found the rates were lower but she would have access to her principal during the 5 years. To say she was disappointed is an understatement.
I told her I wanted to introduce to a concept new to her (and many Canadians). It would fit her requirements for guaranteed principal as well as guaranteed interest over her desired 5 year term. I ran the quote and showed her that she could get a guaranteed income stream on her $100000 deposit of $1733.69/month over the next 5 years. At the end of the time period, she would have been paid out $104020. Since she only needed $300/month, I proposed putting the difference of $1433.69/month in a TFSA account that pays 1%/yr (no minimums). If we did this over the next 60 months, she should have $88213. If interest rates increase over the next 5 years, she will likely have more since the 1% is not a locked in savings rate. If she needed more cash along the way, she could simply take it from the TFSA with no penalties.
She liked the guaranteed income stream, the guaranteed interest rate on it, the higher cash flow and flexibility. She liked the idea of saving the difference in the TFSA and her access if needed. I was able to take 2 separate products put together to form a solution that works for her. Neither product is subject to market fluctuation so she has a guaranteed income stream and rate on the $1733.69/month and a TFSA that is open and pays 1%/yr now and will likely increase if interest rates go up.
This is the value of working with an advisor.
I was happy to provide a customized solution for her needs. This is where we bring value to our clients and come up with solutions for their needs.
If you would like more information, please contact me at 403-861-9041 or Glen@g-i-f-s.ca.
I look forward to hearing from and working with you.